Modul 11 - Total Compensation Concept

TOTAL
COMPENSATION
CONCEPT
Modul 11
CERTIFIED HUMAN RESOURCES
PROFESSIONAL (CHRP)
Certification on Human Resource Professional (CHRP), AtmaJaya University Jakarta, 2006
OBJECTIVES
z
By the conclusion of this Module, you will

be able to accomplish the following:
Explain
the
alignment
of
Total
Compensation to Companys Mission,
Vision, Values, and Business Strategy.
Define the concept and components of

Total Compensation.
Identify the purposes of each component

of Total Compensation.
Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006
TOTAL COMPENSATION DESIGN

PROCESS
COMPANY MVVO
COMPENSATION OBJECTIVE
JOB DESCRIPTION
SALARY SURVEY
JOB EVALUATION
SALARY STRUCTURE
POLICY / SYSTEM
SALARY ADMINISTRATION
SALARY PROGRAM
TRAINING/COMMUNICATION
EVALUATION
Total Compensation
Compensation Design
Design
Total
The design process begins
with the corporate vision and
Process
Process
mission. The human resources philosophy builds on the
business strategy and serves as a guiding light in the design of
all HR Programs.
Human resources philosophy and strategy is the big picture,
Total Compensation philosophy and strategy narrows this HR
philosophy and strategy specifically to the three facets of total
compensation (compensation, benefits and the work
experience).
The design of any compensation program should maintain
alignment with the other elements in the process. The synergy
created by this alignment will help to ensure program success
AligningHR
HRStrategy
Strategywith
withOrganizational
OrganizationalVision
Vision&&Mission
Mission
Aligning
Vision
What do we want to be
Mission
What do we want to do
Core Competencies
What are we good at
Internal/ External
Influences
What is the context

within which we work
Critical success factors
What has to happen for us to win
Performance Mgmt System How can we tell how well we did

Staffing, development,
Remuneration Strategies
What should our HR strategy be
VISION
z
A vision pulls people forward. It projects a clear

image of a possible future. It generates the
enthusiasm and energy to strive toward the
goal
All inspiring visions offer the following
attributes:
z
z
z
z
z
Ideal (a high standard to aspire to)

Unique (pride of being different, an identity)
Image (a concept or mental picture made real or
tangible through descriptive language)
Future oriented a map of the journey and statement
of the goal ahead)
Common purpose (a way people can join together)
Mission
Definition: An organizations reason for existence or
its purpose for being.
Purpose: To guide Managements planning and
decision making. The mission answers the
question, Where is the organization heading?
Sample Mission Statements:
An Energy Company The aim of our Company is to meet
the energy needs of society, in ways that are economically,
socially and environmentally viable, now and in the future.
A Consumer Products Company Our purpose at our Company is
to meet the everyday needs of people everywhere to anticipate
the aspirations of our customers and to respond creatively and
competitively with branded products and services which raise the
quality of life.
Business Strategy
Definition: Business Strategy is the Companys broad plan
for competitively positioning its products or services with
the intent to accomplish or support the Companys mission.
Elements of Business Strategy (Key Success Factors):
Production Innovation: Sony, Johnson & Johnson
Customer Intimacy: Singapore Airlines, Garuda
Operational Excellence: Wall Mart, Dell Computer
Functions: Business Strategy drives Human Resources

Philosophy and Total Compensation Design
SAMPLE OF VISION AND VALUES
VISION
To be the worlds leading energy resource

and project development company
Best People
Best Partner
Best Performance
To improve the lives of people wherever we work
Honesty
Integrity
Excellence
Trust
VALUES
Best People and Best Performance

VISION
Selection
Selection
Best
BestPeople
People
Best
BestPartner
Partner
Best
BestPerformance
Performance
Medical
Medical
Services
Services
Performance
Performance
Management
Management
HR
HR
Processes
Processes
Comp
Comp&&
Benefits
Benefits
People
People
Devt
Devt
(CP/CD)
(CP/CD)
Labor
Labor
Relations
Relations
Employee
Employee
Administrn
Administrn
HRIS
HRIS
Total Compensation Model

z
Compensation & Benefits are two core components of total

compensation
z
z
z
Work Experience is the third component

z
z
z
z
z
Overlap at varying degrees depending on organization culture

and intended impact
Each has unique and distinct body of knowledge
Strategic advantage and impact
Includes elements of rewards that are important to employees

and employers but are less tangible than compensation and
benefits
Overlaps and relates to compensation & benefits
Employees place high value
Will differ with different geographic regions and cultures
Internal & External Influences

z
z
z
All three components are influenced by many factors that overlay

or act on the entire total rewards process and may or may not be
controllable
Examples of internal influences include corporate mission, cost,
culture and organizational structure
Examples of external influences include competition, labor
market & the economy.
Human Resource Philosophy and

Strategy
Human Resources
Philosophy & Strategy
Job Design and

Accountabilities
Performance Measures
and Objectives
Personnel Selection and
Development Strategy
Total Compensation
TOTAL COMPENSATION
FRAMEWORK
z
What kind of work must be performed to meet

your customers need ?
What kind of performance standards must you

have to be successful ?
What kind of people and talent do you need to

accomplish this work and achieve team standards
?
z
Your compensation program can be designed only

after identifying the talent required.
Total Compensation Management

COMPENSATION:
z
Something in return for something. Compensation

implies that at least two parties are involved in the
transaction:
z Employer
z Employee
Both parties are givers or providers and both parties

are receivers. Stated very simply, the employee
gives his/her services (from purely manual to highly
intellectual) to the employer. In return the employer
compensates the employee in many ways:
z
Cash and Non-Cash

(continued)
MANAGEMENT
z
The process needs to have common elements in

order to be of value to the employee and employer.
This value is not always dollar-based, but it can be
valued in terms of total dollars for the most part.
Perception plays a big role in determining this value

especially from the employees standpoint.
Therefore, a key factor in a successful total
compensation
program
is
the
effective
communication of the program.
Appropriate
communication helps manage perceptions.

(continued)
zDirect
Compensation/Cash Compensation:
zCash
payments made to employees in exchange for

their contributions to an organization.
zIndirect
Compensation/Benefits:
All forms of non-direct, i.e., non-cash, compensation

made to employees in exchange for their contribution
to an organization.
z
TOTAL COMPENSATION
PROGRAM
Direct Pay Compensation
Indirect Compensation
Attract
Retain
Motivate
Attract
Retain
Motivate
Total Compensation
Attract
Retain
Motivate
What elements of the program can attract new employees ?
What elements of the program can help an organization keep key employees ?
Can any part of the total compensation program motivate performance ?

OBJECTIVES OF TOTAL
COMPENSATION
To
provide
externally
internally
competitive
equitable
and
compensation
program that attracts, motivates and retains

high caliber employees to ensure companys
achievement of its vision and mission in the
most economical cost.
OBJECTIVES OF TOTAL
COMPENSATION (continued)
To attract, retain and motivate individuals of the caliber necessary
to achieve the organizations objectives.
To provide a coordinated, cost-effective total compensation
program which is responsive to organizational and employee
needs.
To recognize individual and group performance and contributions
meeting short-and long-term organizational objectives.
To provide equitable pay opportunity and pay levels.
To communicate organizational objectives and align employee
efforts with those objectives.
To provide a competitive benefits package through cost-effective
programs which are responsive to the differing needs of
employees.
To comply with legal/regulatory requirements.
THE COMPONENTS:
Among others..(1)
Base Pay
Regular & Location Related Allowance
Housing & Transportation Allowance
Vacation Travel Allowance
Annual Leave Allowance
Variable Pay (Cash Incentive, Bonus, etc.)
Share Grant/ Share Option Plan
Savings Plan
Medical Outpatient
Hospitalization
Dental & Optical
Medical Check-up & Maternity
Death & Disability Benefits
No one component can do it all !!
THE COMPONENTS (continued):

Among others..(2)
Education Assistance
Rest & Relaxation Program
Annual Leave & Other Leave
Credit Card
Service Award
Club Membership
Company Car
Company Provided Housing
Cellular Phone
The COMPONENTS (continued):

Among others..(3)
Home Loan Program

General Employee Loans
Car Loan/ Car Ownership Plan
Retirement Plan DPLK Defined Contribution
Defined Benefit Pension Plan
Termination Benefits
Voluntary Resignation Benefit
Big Table & Small Table Severance Payments
ELEMENTS OF TOTAL COMPENSATION

COMPANY XYZ
Direct Compensation
- Base Salary
-Regional Allowance
- Temporary Monetary
Assistance (MAC)
- Overtime Pay
- Excess Working Hours
- Shift Allowance
- Onshore Allow
-Offshore Allow
-Leave Allowance
- THRK
- Vacation Travel Allowance
- AIP
- Coy Tax
- Severance Pay
(Defined Benefits)
- Monthly Pension (Defined
Contribution)
- Old Age Benefit
- Coy Tax on Severance
Pay
- Medical Coverage
- HOP Loan
- VPA
- Educational Loan
- Natural Death Benefit
- Long Term Disability
-Industrial Death Benefit
- JK/JKK (XXVI.B)
-Salary Continuation
- Paid Vacations/Holidays
- Coy Tax
Deferred Compensation/Benefits
Total Compensation looks at all the cash programs, all the non-cash programs, and all the
deferred compensation and benefit programs offered by an organization to its employees.
REWARD SYSTEM COMPONENTS

For 100% good-faith effort and
results
Base
To be competitive with the
market and meet statutory
requirements
For achievement of
sustained, long-term
financial/operational results
(KPIs)
Annual
Incentive
Plan(s)
For achievement of shortterm financial/ operational

results (KPIs)
Allowance
Long-Term
Incentive
Plan(s)
Benefits/
Perquisites
Cost to
The company
Value
To Employee
To provide basic,
core protection, and
motivational noncash rewards
WHAT IS THE OPTIMUM MIX, LEVEL AND LEVERAGE TO SUPPORT THE BUSINESS
STRATEGY AND BUSINESS CULTURE OF THE COMPANY AND PROTECT THE INTERESTS OF
THE SHAREHOLDERS OF THE COMPANY
REFERENCES
1.
Total Remuneration Management, Seminar GR 1 WorldAtWork
2.
Compensation Theory and Practice, Wallace, M.J., and Fay, C.H., PWSKENT Publishing Company, 1998Creating Corporate Culture, Hampden,
C.T., Addison-Wesley Publishing Company, 1992
3.
Human Resource Management, Positioning for the 21st Century, Schuler,

R.S., Jackson, S.E., West Publishing Company, 1996
4.
The Executive Handbook on Compensation, Linking Strategic Rewards to

Business Performance, Fay, C.H., The Free Press, 2001
DIRECT COMPENSATION
Ones Lebang
MODULE 2
DIRECT COMPENSATION
OBJECTIVES
z
By the conclusion of this Module, you will

be able to accomplish the following:
Differentiate Direct Compensation from

Indirect and Deferred Compensation.
Define the concept and components of

Direct Compensation as applicable in a
certain organization.
Identify the purposes of each component

of Direct Compensation as applicable in a
certain organization
ELEMENTS OF TOTAL COMPENSATION

COMPANY XYZ
Direct Compensation
- Base Salary
-Regional Allowance
- Temporary Monetary
Assistance (MAC)
- Overtime Pay
- Excess Working Hours
- Shift Allowance
- Onshore Allow
-Offshore Allow
-Leave Allowance
- THRK
- Vacation Travel Allowance
- AIP
- Coy Tax
- Severance Pay
(Defined Benefits)
- Monthly Pension (Defined
Contribution)
- Old Age Benefit
- Coy Tax on Severance
Pay
- Medical Coverage
- HOP Loan
- VPA
- Educational Loan
- Natural Death Benefit
- Long Term Disability
-Industrial Death Benefit
- JK/JKK (XXVI.B)
-Salary Continuation
- Paid Vacations/Holidays
- Coy Tax
Deferred Compensation/Benefits
Total Compensation looks at all the cash programs, all the non-cash programs, and all the
deferred compensation and benefit programs offered by an organization to its employees.
DEFINITIONS :
z
Upah adalah hak pekerja/buruh yang diterima

dan dinyatakan dalam bentuk uang sebagai
imbalan dari pengusaha atau pemberi kerja
kepada pekerja/buruh yang ditetapkan dan
dibayarkan menurut suatu perjanjian kerja,
kesepakatan, atau peraturan perundangundangan,
termasuk
tunjangan
bagi
pekerja/buruh atas suatu pekerjaan dan/atau
jasa yang telah atau akan dilakukan.
BASE PAY
What is Base Pay?
The amount of money you receive on an
hourly, monthly, or annual basis that is . .
Based on the value of your job-related skills and

experience compared to the market; and,
Tied to individual performance and contribution

relative to others.
BASE PAY (continued)

Objectives of Base Pay:
Base Pay is intended to:
Provide a fundamental level of reward based on how

the position compares externally (vs. market) and
internally (vs. other roles in a company).
Reward performance and contribution over time.
BASE PAY (continued)

z
How Base Pay is Determined

The
value of the job in the market.
By position
By geography
Comparison
with salary structure.
Salary Grades and Ranges
Individual
performance and contribution

relative to others.
EQUITY AND BASE PAY

SYSTEMS
OS OO
=
IS I O
O = Outcomes
I = Inputs
= Self
O = Relevant Others
S
BEHAVIORAL THEORIES
Equity Theory
1. If ratios are equal, satisfied
2. If employees ratio is greater than
others, over-rewarded
3. If employees ratio is less than
others,
under-rewarded
and
dissatisfied
INTERNAL EQUITY
Different job, same
organization
z
z
z
z
Job Analysis
Job Descriptions
Job Evaluation
Salary Structures
EXTERNAL EQUITY
Same job, different
organization
z
z
z
z
Salary Surveys
Benefit Surveys
Market Pricing
Other Benchmarking
INDIVIDUAL EQUITY
Same job, same
organization, different
incumbent
z
z
z
z
Performance
Effort
Seniority
Legitimate (and not so
legitimate) individual
differences
PROCESS EQUITY
Procedural justice
z
z
Fairness of process
Communication
Participation
Appeals
COMPENASATION STRAEGY
AND YOUR ORGANIZATION
z
What compensation strategy is implicit in

your Base Pay program?
How does it support organizational strategy?

Could it do better?
Is it aligned
programs?
with
other
compensation
Transportation Allowance General Industry

Transportation Allowance in Rp000 Per month
Employee Category
Min
Top Management*
Management
Officer/Spv.
Clerical
Non-clerical
151
140
140
100
50
LQ
220
220
136
100
Med.
575
300
222
121
UQ
750
400
300
167
Max
1,000
1,000
750
600
300
Source : Watson Wyatt Total Remuneration Survey 2002

*: Due to insufficient data, we only provide the Minimum, Maximum and Average information
Avg.
575
554
358
249
142
ALLOWANCES (CONTINUED)
z
Labor Law No. 13. Article 94:

z
In the event the wage components consist of Base

Salary and Fixed Allowances, the magnitude of the
Base Salary is at the minimum 75% (seventy five
percent) of the sum of the Base Salary and Fixed
Allowances.
Example: Base Salary: Rp. 5,000,000.-
Housing Allow: Rp. 1500,000.Transport Allow: Rp. 1,000,000.Is the above in compliance with the Labor
Law?
ANSWER
PROPORTION OF BASE PAY TO FIXED ALLOWANCES
13%
20%
BASE
HOUSING
TRANSPORT
67%

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TOTAL

Certification on Human Resource Professional (CHRP), AtmaJaya University Jakarta, 2006

By the conclusion of this Module, you will

Define the concept and components of

Identify the purposes of each component

TOTAL COMPENSATION DESIGN

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

What are we good at

What is the context

Critical success factors

What has to happen for us to win

Performance Mgmt System How can we tell how well we did

What should our HR strategy be

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

A vision pulls people forward. It projects a clear

Ideal (a high standard to aspire to)

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

Functions: Business Strategy drives Human Resources

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

SAMPLE OF VISION AND VALUES

To be the worlds leading energy resource

To improve the lives of people wherever we work

Best People and Best Performance

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

Total Compensation Model

Compensation & Benefits are two core components of total

Work Experience is the third component

Overlap at varying degrees depending on organization culture

Includes elements of rewards that are important to employees

Internal & External Influences

All three components are influenced by many factors that overlay

Human Resource Philosophy and

Job Design and

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

What kind of work must be performed to meet

What kind of performance standards must you

What kind of people and talent do you need to

Your compensation program can be designed only

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

Total Compensation Management

Something in return for something. Compensation

Both parties are givers or providers and both parties

Cash and Non-Cash

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

Total Compensation Management

The process needs to have common elements in

Perception plays a big role in determining this value

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

Total Compensation Management

payments made to employees in exchange for

All forms of non-direct, i.e., non-cash, compensation

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

Can any part of the total compensation program motivate performance ?

program that attracts, motivates and retains

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

THE COMPONENTS (continued):

No one component can do it all !!

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

The COMPONENTS (continued):

Home Loan Program

No one component can do it all !!

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006

ELEMENTS OF TOTAL COMPENSATION

Certification on Human Resource Professional (CHRP), AtmaJaya University, Jakarta, 2006